More Spending, More Fiscal Deficit

The budget presented by the Salvadoran government for next year will be 23% higher than in 2018 and increases to $1.613 million the gap to be financed.

Tuesday, October 23, 2018

The Salvadoran Foundation for Economic and Social Development (Fusades) reported that the draft National General Budget 2019 (PP2019) totals US$6,733.2 million, an increase of US$1,265.7 million (23.1%) over the voted budget 2018 and is equivalent to 24.9% of the gross domestic product (GDP) 1. This is the amount that has been budgeted for the Central Government for 2019, which shows a significant increase with respect to the 2018 voted budget and the gap to be financed is greater, since it will need financing in the order of US$1,612.5 million.

According to estimations of the Fusades, the fiscal deficit from PP2019, indicate a gap of US$972.5 million (3.6% of the GDP) for the non-financial public sector (NFPS), like the deficit projected by the Finance Ministry in 2019 about 3.7% of the GDP.

When analyzing PP2019 with reference to the Fiscal Responsibility Law for the Sustainability of Public Finances and Social Development (Ley de Responsabilidad Fiscal para la Sostenibilidad de las Finanzas Publicas y el Desarrollo Social, LRF), it is observed that it is in the opposite direction to the 3% adjustment that should have been made during 2017-2019. In 2016, when the LRF was issued, the primary balance and fiscal deficit were -0.2% and -2.8% of GDP, respectively; therefore, depending on whether the 3-point adjustment was applied, a primary balance of 2.8% or a fiscal surplus of 0.2% in 2019 would have to be achieved.

Moreover, if some of the projections on which PP2019 has been prepared are not met, an even larger deficit than estimated could be reached. According to our own estimates, if PP2019 is approved without any change, the uncovered gap could total US$72.

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